by Gary Alexander
August 6, 2024
Today marks the mid-point of summer – the 46th of 91 days between June 21 and September 20 – and the market is doing something it often does in August – testing our patience. Consider the last two summers:
- In 2022, the S&P 500 peaked at 4,130.29 on July 29, then sank 13.4% to 3,577.03 on October 12th.
- In 2023, the S&P 500 peaked at 4,607.07 on July 27th and then sank 10.6% to 4,117.37 on October 27.
This year, the S&P 500 peaked at 5,667.20 (on the close) on July 16th and is down 5.65% … so far.
But that’s nothing compared to the mid-July peaks and declines in a couple of years in the 1990s:
- In 1990, the S&P peaked at 368.95 on July 16th and then fell 20% to 295.46 on October 12th, mostly in response to Saddam Hussein’s invasion of Kuwait on August 2. The Dow was a more interesting case. That more venerable, more quoted, index peaked at exactly 2,999.75 two days in a row, July 16 and 17, just a quarter point below the 3,000 barrier, before tumbling 21.2% in less than three months.
- Then, in 1998, in a carbon copy of 1990, the S&P peaked at 1,186.75 on July 17th and fell 19.2% by October 8th, mainly in connection with the Russian ruble crisis and the failure of the Long-Term Capital Management (LTCM) hedge fund. The Dow also fell by 19.3% in those 12 scary weeks.
So, there seems to be some rhyming history about mid-July peaks going into October washouts. In fact, the CBOE Volatility Index (the VIX) reached 30 last Friday, its highest reading since the market bottom on October 12, 2022, so this doesn’t reflect August doldrums as much as the annual hurricane season.
Thankfully, we’ve got the Olympics to distract us. So far, the United States leads in medals, fighting it out with China for global dominance (and medal count), being challenged by the surprise Euro-zone leader and host nation, France, who is well ahead of the once-mighty Euro-zone leader, Germany.
Here are the top three national Olympic medal leaders through 9 (of 16) days in the Paris Olympics:
These medals are a microcosm of how the world aligns economically in its three leading trading zones.
The U.S. is Winning Most Medals in Economic Performance
Economist Ed Yardeni wrote last week that, “If there were an Olympic competition for consumption, American consumers would win gold, silver, and bronze. If there were a competition for technological innovation, the US would win gold and silver in software and research and development (R&D). If there were an Olympic competition for overall economic performance, the US economy would win gold.”
The GDP Growth Gold Medal might be controversial. Yardeni said U.S. GDP rose to another record high of $22.9 trillion in the second quarter, rising 2.8% (vs. 1.4% in the first quarter). Personal consumption expenditures (on both goods and services) and real business capital spending also hit new highs. Real consumption per household hit a record high of $119,400, tripling since the late 1950s in real dollars.
In dollar amounts the U.S. has China beat by a mile, but China claims a 4.7% annual rate GDP growth in the second quarter, which, on the surface, earns them the gold medal in growth rate, but we doubt China’s data. China’s imploding real estate market is throttling domestic consumption, which makes one suspect such a hot GDP reading. Beijing loves to control its people and try to manufacture growth, this time by slashing interest rates and launching a “Cash for Clunkers” program, now including a “Cash for Slums” crusade, by allowing local governments to purchase unsold apartments (so far, “no sale”). New home prices in China fell 4.5% in the last year to their lowest levels since June 2015 (Reuters). Restaurant sales are down. Even smartphone sales declined. And GDP is rising? How can China grow amid deflation?
As for the Euro-zone, with +0.6% GDP growth as a whole, the surprise leaders are two former PIGS, Spain (+2.4%) and Greece (+1.9%). Among the Big 3, France is the leader, at +1.1%, Italy is +0.9% and Germany lags at -0.2%, reflecting the Olympic medal count, with France #3, Italy #8 and Germany #10.
The German economy is missing in action. Their recent coalition of Social Democrats, Greens and Free Democrats is not the sort of menage-a-trois Dream Team to promote economic growth. The Green Party’s influence on huge energy subsidy spending has raised energy costs, internal dissent and a 2024 recession:
- Germany’s economy fell 0.2% in the second quarter after -0.1% in the first quarter – a recession.
- Germany’s Ifo Business Climate Index just fell to a five-month low in July.
- Germany’s HCOB Manufacturing PMI fell from 43.5 in June to 42.6 in July, with production and new orders declining at their fastest rates this year, plus a decline in manufacturing employment.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The Euro-zone as a whole is trailing the U.S. by a mile so far this year, as indicated by the European Central Bank’s (ECB’s) need to cut rates in June, before the Fed made its first cut. The Euro-zone Manufacturing PMI has now suffered 16 straight months of contraction, beginning in April of 2021.
More Gold Medals for the U.S. – For Consumers, Businesses, Earnings and Stock Gains
The U.S. consumer wins medals for a 2.5% increase in spending, year-over-year, and +2.6% in June, with real spending on durable goods rising 4.7% in the second quarter. Ed Yardeni explains these gains using demographics, writing last week: “The boom in consumption is fueled in part by retired Baby Boomers saving less and spending down their net worth. Meanwhile, younger generations are likely spending most of their current incomes, which are being boosted by the transfer of inherited wealth to them.”
U.S. business also won a medal or two, since real capital spending rose 5.2% last quarter to a record high $3.3936 trillion, about double the 2010 levels and quadruple from the early 1990s (see chart, below). Intellectual property – including software, R&D and artistic property – is rising even faster and now accounts for 43% of the $3.4 trillion in fixed private investments, with AI the rising star in the sector. Capital equipment investment rose even faster last quarter, up 11.6%, quarter over quarter, another gold.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
A final U.S. gold medal should be awarded this earnings season, which will conclude about a week or two after the Paris Olympics end. Through last Friday, with 75% of S&P 500 companies reporting, 78% of those companies have reported positive earnings surprises, according to FactSet, and their blended year-over-year growth rate is +11.5%, which (if this holds) will be the highest increase since Q4 of 2021 – just after the Tokyo Olympics were held, a year delayed due to COVID. Companies are currently predicting a 13.7% year-over-year increase for Q4, and analysts see +14.8% EPS next year, and +13.4% in 2026.
As for market performance, the U.S. also wins gold, with the S&P 500 up 12.1% for the year, through Friday, vs. 1.4% for Euro STOXX 50 vs. -2.3% for the Shanghai Composite, in the top three regions.
These gold medals make the dog days of August endurable, if you can handle the random hurricane.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Jobs Data is Weaker Than Expected
Income Mail by Bryan Perry
The Market Fears the Fed is Behind the Curve Again
Growth Mail by Gary Alexander
The Current Medal Count Between the Big 3 Economies
Global Mail by Ivan Martchev
The Bond Market is Already Cutting Rates for the Fed
Sector Spotlight by Jason Bodner
What Kind of Volatility to Expect, Especially in Election Years
View Full Archive
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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